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Smart Tax Season Strategies

Use Your Refund to Reduce Future Debt

Tax season is here, and while this year may be atypical, people are often split into two camps: those who dread the paperwork and those who are excited at the idea of receiving a tax refund. Some people will put their refund toward something fun, like a vacation, while others will use it to pay off bills or contribute to a major goal, like a new home. Here’s another option to consider—use it to fund a 529 plan.

With the cost of education continuing to rise, starting early and saving often can mean the difference between earning interest or paying it, being in debt or starting the next stage of life debt-free. The first step is to open a 529 plan and begin saving for future education costs.


529 Plan Advantages

  • Tax Deferred Growth

    Contributions to a 529 plan grow tax-deferred, and withdrawals are tax-free if they’re used for qualified educational expenses (like tuition, room and board, and textbooks).

  • Greater Flexibility

    529 plan beneficiaries can be changed at any time to another member of the beneficiary’s family. If a child receives a scholarship or defers college enrollment, the 529 funds can be transferred to another beneficiary, unlike UGMA/UTMA Custodial Accounts which don’t allow for beneficiary changes. With the SECURE Act, families can also now take tax-free 529 plan distributions up to $10,000 for student loan repayment.

    Account owners who are New Mexico taxpayers are cautioned that a withdrawal made to pay for Apprenticeship Expenses or to make Student Loan Payments is likely to be treated as a withdrawal that causes a recapture of amounts previously deducted for New Mexico income tax purposes. New Mexico account owners should consult their own tax advisors before using their New Mexico plan accounts for such expenses or payments.

  • Greater Control

    529 plan account owners maintain complete control at every step of the savings process, from choosing the investment portfolios to designating the beneficiary and distributing the funds. Funding a 529 account is considered a completed gift to the beneficiary for estate tax purposes, so all contributions and earnings grow outside the taxable estate.

  • Fewer Limits

    529 plans have no time or age restrictions. Savers can contribute at any point in the beneficiary’s life, from birth to retirement. 529 plans also have no income limits, unlike Coverdell Education Savings Accounts. You can start an account with The Education Plan with just a $1 minimum contribution and have up to a $500,000 account maximum.


Smart Saving in Volatile Times

Given recent times of market volatility, it is important to remember that an account with The Education Plan offers:

  • A variety of investment options based on how comfortable you are with risk. You can choose from an age-based strategy or more customized options.
  • Low fees. At just 0.10% - 0.44% depending on the portfolio you choose, the fees for The Education Plan are some of the lowest available for a 529 account.
  • Are based on a thoughtful selection of real-time factors, including return forecasts, risk assumptions, tuition growth rates, risk tolerance and average savings rates.

If you have a tax refund this year, consider opening or adding to a 529 plan. Open an account with The Education Plan is easy and takes just 15 minutes.

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